This paper provides a comparison of the exponential copula Lévy model with the classical Gaussian copula model for the …

, variance–covariance and copula approach. Firstly, the three popular approaches are adopted to aggregate credit risk, market … conservative and variance–covariance approach is overly optimistic, so it is suggested that copula approach is the future major … trend for bank risk aggregation. Especially, t copula with degree of freedom between 1 and 10 is a good choice to capture …

We characterize diversification in corporate credit using a new class of dynamic copula models which can capture … equity return dependence dynamics. Modeling a decade of weekly CDS spreads for 215 firms, we find that copula correlations … high since. Perhaps most importantly, tail dependence of CDS spreads increase even more than copula correlations during the …

total risk. Third, we estimate and compare alternative established frameworks for risk aggregation (including copula models … implementing a simple non-parametric methodology (empirical copula simulation- ECS) in order to quantify integrated risk, in that … relative to the standard Gaussian copula simulation (GCS), while the variance-covariance approximation (VCA) is much lower. ECS …